Photo: Target
Will a new private label keep Target’s customers out of Aldi and Dollar General?
Target is introducing a new line of toiletries and household cleaning products with the goal of attracting budget-conscious shoppers to its stores and target.com.
The new line — Smartly — includes more than 70 items, such as all-purpose cleaners, body lotions, dish soap, razors and toilet paper with prices ranging from 59 cents to $11.99. Most sell for less than $2 and are targeted at consumers who purchase these items in small quantities.
“It’s about showing people that I don’t have to go to Aldi or I don’t have to go to Dollar General to find what I’m looking for,” Mark Tritton, Target’s chief merchandising officer, told The Wall Street Journal.
Target will introduce the Smartly line in the middle of this month. The private label will be priced at about 70 percent less than comparable national brands made by companies such as Procter & Gamble. Smartly items, according to the Journal, will be priced at about 50 percent of Target’s own Up & Up private brand line.
While CEO Brian Cornell has lauded Target’s “enhanced and differentiated shopping experience” as the key factor driving customers to its stores and target.com, the retailer has also touted price competitiveness as a key element in its strategic plan. Target continually emphasizes, for example, that holders of its REDcard credit cards receive an additional five percent discount off purchases from the chain. The retailer’s popular Cartwheel program also offers additional discounts of five percent and higher on items throughout the store.
Mr. Cornell has been willing to sacrifice profits in some areas such as home delivery to compete with larger rivals, Amazon.com and Walmart. During the summer, for example, the retailer announced that it would offer free next day delivery to holders of its REDcard on orders from Target Restock, the chain’s answer to Amazon’s Prime Pantry program.
Target’s combined comp sales grew 6.5 percent during the second quarter as revenues at it stores improved 4.9 percent and online jumped 41 percent. It reported 6.4 percent traffic growth, the highest quarterly increase at the chain since 2008.
Discussion Questions
DISCUSSION QUESTION: How do you see Target’s new Smartly line fitting in with its private and exclusive label strategy? Will the new line be successful in keeping a greater percentage of its budget-conscious shoppers from going to rivals such as Aldi and Dollar General?
Poll
BrainTrust
Neil Saunders
Managing Director, GlobalData
Carol Spieckerman
President, Spieckerman Retail
This is a sound strategy for strengthening opening price points at Target and allowing consumers to get better value. Target now has a sound good/better/best pricing structure across grocery and household and that will prove to be beneficial in attracting and retaining shoppers.
That said, this does not negate the threat of the deep discounters like dollar stores entirely. First, those players tend to be very local and convenient in a way that Target, even with it smaller formats, is not. Second, the one-dimensional nature of value players means that it is hard to overspend there; this is the exact opposite of Target where people are tempted by all sorts of things which can make shopping trips seem expensive.
Target needs to ensure that the customer understands the difference between both label strategies. Referring to Aldi’s concept, I do not think that the new (cheaper) private label at Target’s will keep budget-conscious shoppers from going to Aldi. Aldi’s private label has always been focused on good to high quality. In numerous independent analyses of the quality of private label products from Aldi, the products sometimes turned out to be at minimum the same quality as the branded reference point in that category.
Very prudent indeed. Offering a “value” brand will surely help thwart consumer defection to other channels. If Target can effectively attract – and retain – budget- conscious shoppers with Smartly, they may be able to gradually move them to more profitable items within other categories. It’s much easier to sell one more thing to a current patron than try and bring them back after they have switched to a rival.
The Smartly introduction signals that Target is still fighting a perception that its prices are too high on commodities, at the same time that it gains traction in its new apparel and soft home private brands. Target invested a lot in its Up & Up brand, and the new products are likely to cannibalize sales of the old ones at lower margins.
I see Target’s core customer and Dollar General/Aldi’s as two different things altogether with two separate marketing strategies. Having said that, it’s pretty smart (pun intended) for Target to keep that discount base of their brand alive especially with private label and not turn into another department store. We have a pretty good idea of what will happen if they do.
Aldi and even Walmart send clear messages about price. Target now sends a convoluted one. Time will tell if this resonates with shoppers or adds confusion to what the Target name represents.
The Smartly line is a good way to message value to shoppers who may not otherwise think of Target as a destination for staples. Target has gone all-in on private brands as of late and Smartly checks the “good” box in frequently-purchased categories. This effectively positions Up & Up as “better” and national brands, and Target’s proprietary partnerships, as “best,” giving a range of shoppers incentive to check more items off their lists while in Target. Great timing too, as the holiday shopping season cranks up. Increased store traffic should hasten awareness and help Target gain traction with the new offerings.
You’re absolutely right, Carol. Very common among UK (and other) retailers to have a value, better, and best product philosophy. I’m among those who believe this strategy is sound for Target.
Nothing new. Target has introduced a number of new brands in electronics, apparel and home goods. In fact, in the future, they must be careful not to compete with their own brands currently in the mix. That being said, I think this could be a home run for them with this pricing/size strategy, (especially for the small needs customer), but it will not stop their budget customers from still walking into Aldi or Dollar General. However it is a hurdle well placed! I wonder how the national brands will react.
This is an interesting move for Target who traditionally does very well with private label lines. However, most customers see Target’s private label lines in other product categories not just as a value choice, but as a premium product at a value price. That makes it a win for Target and the customer. In this case, Target is introducing a line purely at a value price point, but not necessarily the same premium product (which would otherwise cannibalize their up and up line). While I’m not sure this fits in with the “cheap chic” style Target has been known for, it may very well keep customers from feeling like they need to shop at a Dollar General or Aldi for certain items that they can now get at Target at that same value price.
At the risk of drawing critical ire, I want to join Ken in the skeptic’s camp. Target’s success as a brand was not built on trying to be all things to all people, so changing course in that direction may be a fairly perilous strategy. The idea that every retailer ought to have something for every potential customer just doesn’t work in the real world. Walmart can go upscale — but only so far before it begins betraying its brand promise. The same is true — in reverse — for Target. Sure, I can conceive of this strategy working … to a degree, but if it does I can also see Target losing customers on the more affluent end of the consumer spending spectrum. Sol Price used to talk about what he called “the intelligent loss of business,” i.e., not trying to be all things to all people and letting unprofitable and/or brand-diminishing sales go to the competition. It’s a lesson Target executives might do well to dust off.
Is this an organizing idea for commodity (aka consumer staples) OPP? Makes sense. I doubt Target will allocate many resources to build it into a powerful identity. Some of these categories are low interest, so shopper household income will be highly variable. Low interest categories don’t suggest a special shopping trip. The role seems to be to increase basket size.
Will Smartly be as good as Kirkland? Doesn’t sound like it. Can Smartly take share from Aldi or Dollar General? Not sure. Depends upon location.
Is the economy growing so that Aldi or Dollar General will be abandoned? Or will double whammy of tariffs (increased costs + decreased income) in rural markets protect low end retail?
NET NET, this is sound assortment rationalization idea. Not sure of its revenue growth opportunity.
Target has been extremely successful with its private label brands and the addition of the low-price Smartly brand is in response to dollar stores and highly discounter retailers like Aldi taking market share from Target on low-priced, high usage product categories. If the prices for Smartly products are as low as the article states, they will successfully protect Target’s market share on these product categories.
The challenge for Target is to clearly differentiate the brand position relative to the Up & brand and premium brands. The risk is that it will cannibalize sales of the Up & Up brand.
Private label for large retailers can and should continue to grow. It will grow at the expense of the large CPG brands who can’t just advertise on TV and spend on in-store marketing and merchandising to win. For Target specifically, I am curious how these brands impact some of digitally native brands they have brought in over the last few years when there is now a private label brand in direct competition. They have Harry’s, Cora, Native and now even Quip in their stores. Will a consumer choose Gillette, Harry’s or a Target private label brand? On Amazon, the customers have spoken and private labels are exploding (they even have a mattress now), so I assume the same will happen in Target.
Not sure if this impacts Dollar General much, as there are like 13K of those stores now, so Target and Dollar Stores compete much less than even the management of Target thinks they do.
I don’t think the executives at Aldi and Dollar General are shrugging their shoulders and saying “so what?” at this move. This was a smart competitive move by Target that will keep a couple more bucks in their coffers and not in the coffers of other retailers. And it will enhance their image as a value retailer. I don’t think they gave up anything or confused anybody with this move.
Private label offers differentiation for retailers like Target to create value from commodities. Sometimes it isn’t just about lower price, it is about quality with the price. Kirkland being the prime example of a private store label that has created a strong following not just because of lower price. I know people who actually prefer the quality of Kirkland products.
Target is cannibalizing its own profits, especially those of their current house brand, by introducing another shelf space competitor at an even lower price point! Target is not examining their competition well. Their customers are not going to Target because they have the lowest prices in town, but instead because they offer a competitive value and a great selection in a nice environment. Know your customer, focus on your strengths, don’t try to be all things to all people. Target is making some poor decisions by competing with Aldi and Dollar General, and eroding their profits and shelf space.